Oil and Gas Stocks Outlook for Tuesday, August 29
Aug 28, 2017 Trading Blog
Very interesting day on Monday with all the hurricane news and rumors. After watching the action, I think my short thesis might be a little too severe. We had every reason to take this market down to the lows, or at least to the lower edge of the range, and we couldn’t do it. There just weren’t any sellers. One thing to note about today’s XOP action, was that the refiners really added some green to the index. Had the refiners been down, the XOP might have flirted with the 28.96 low area.
My opinion on Sunday was that eventually 30.00 would present as a cap on prices and the existing longs would throw in the towel and head for the door. We got the 30 rejection right off the open, and we even had an emotional backing catalyst of the hurricane damage and outages to drive selling. Even oil itself was down decently. However, we still couldn’t find enough selling to crack the market. Maybe the selling is finally exhausted. I mean, if people weren’t willing to sell today on this kind of news, then what exactly is going to make them sell this far down now? One possible answer is that as the experts dig through the hurricane damage and evaluation, what they find could eventually cause some selling. Who knows.
I’m not jumping off the short wagon completely, but I’m not as confident in my short argument after seeing today’s action. I think the attention now shifts away from the hurricane and it’s damage possibilities and toward the coming effect it will have on the API and EIA numbers. Right now, I think the experts are still trying to figure out exactly what has happened, how much damage there is and how long it is going to take to fix it. Many unknowns to sort through and it might take a few days to get the final assessment. The market could possibly sit in a holding pattern ranging between 29.90 and 28.96 until Wednesday, but even that report won’t truly show the complete story. We may range here until the report on September 6.
I was actually able to pick up some nice long positions for longer term holds grabbing small stakes in APA, APC, NBL, DVN, HAL, RSPP and PE. Most of the positions were very near the lows for the day, which was very lucky. All of the positions are green, except the APA position, as I started in on that one at 39.85 last week. The plan is to add to these as they drop, but I’m also willing to sell them if we get a big pop back to the top of the range in the next day or two. Sometimes the quick 3-4% profit is worth locking up in a market that is just ranging from lows to highs and back again.
Outlook for Tuesday: Today was a lack of selling on a day where the sellers had every reason to be out in force. There was a news catalyst and a clear rejection of a resistance level. Yet they didn’t sell and the buyers were willing to step in. I could really see Tuesday being a gap up open and a green day, making another run at that 29.90 level. 29.55 will be an important level Tuesday. That was the upper high value area of Mondays 29.25-29.55 value area. We tried to auction out of that value area about 3:45, but price got quickly rejected. If there isn’t a gap up, then I would expect that we open somewhere between 29.50 and 29.60 with some testing of the top of this 29.25-29.55 range. If the top fails, we likely will move down and test the bottom of the range at 29.25. Actually, I wouldn’t be surprised if we ranged all day Tuesday testing each edge several times and consolidating in front of Wednesday’s numbers.
Trading Plan for Tuesday: I’ve got some long exposure that I am happy with, so I’m not looking to add any more longs up here in the high value area. I will be waiting for price to drop back to the low value area around 29.25 to both add to the longs I already have, and to likely daytrade the XOP for a long back to the top of the range later in the day. I will not be taking any shorts on Tuesday if I can help it. Without a confident supply of sellers, any big buyer could set price off to the upside and wipe out any short trades quickly.
Individual Stocks: Not much rhyme or reason as to which stocks were weak or strong today. I figured more of the Eagle Ford and Permian stocks would be weaker, but that wasn’t the case. The Bakken stocks like WLL, OAS, MRO and CLR were actually weaker than the Texas group. I’m sure there are some fundamental reasons why each of the stocks did what they did today, but my expertise in actual day to day operations, pipeline access, well locations, etc. isn’t strong enough to evaluate the hurricane damage possibilities and make individual stock decisions. Refiners VLO, MPC, HFC, PBF and ANDV were the strongest group and had a big positive effect on the XOP early in the day. Natural gas stocks were stronger than the index with COG and SWN green and EQT and AR down less than half a percent.